Commodity trading witnessed a noticeable rise for the third week, and energy and metals achieved wide gains to compensate for weaknesses in the agricultural sector. As a result, the Bloomberg Spot Commodity Index – which tracks the performance of commodity futures contracts over the course of the near month – continues to trade near its highest levels in ten years.
In the weekly commodities update, Ole Hansen, Head of Commodity Strategy at Saxo Bank said: “High inflation remained a primary focus that was based somewhat on higher input costs caused by higher commodity prices. Factory door-to-door price inflation in China reached its highest level since 2008, as authorities offered to release state reserves of industrial minerals as part of their ongoing efforts to cool commodity prices and curb inflation. At their fastest pace since 2008, US consumer prices rose by 5% year-on-year, and core inflation rates reached their highest levels since 1992.
However, these developments did not affect the performance of investors in the bond markets, and Treasury yields fell to new lows during the session. This trend was based on a combination of the market’s current approval of the Fed’s view, which says that high inflation will soon change its course to the downside, and liquidity in US dollars will flow into the market, while the US Treasury continues to reduce its accounts below $ 500 billion by August 1 from its highest levels in 2020 at around $1,800 billion. The combination of low yields and a weak dollar played a role in boosting risk appetite across all markets, including commodities.
Gas prices on the Dutch TTF Center and the European Climate Exchange for Carbon Credits showed their biggest gains during the week, two of the commodity futures contracts traded in Europe and non-members of the mentioned commodity index. In the Dutch hub, considered the European benchmark, gas contracts in the near month reached a five-month high on a combination of supply shortages caused by above-average temperatures, temporary drops in flows from Norway and Russia, and not least the renewed rise in EU carbon credits. European Union, allowing prices to rise above 53 euros per ton.
In the past year, and especially since November, the ICE EUA futures contract – which represents 1 tonne of carbon emissions – has risen sharply, trading at €40 or 300% above the average price for the past five years. The first vaccine was announced in November, which indicated a clear path towards a global recovery, in addition to the election of Joe Biden as President of the United States of America and his introduction of more environmentally friendly policies.
iron ore contracts
Iron ore futures traded in Singapore made headlines last week; It rose strongly to continue to recover from the 27% decline seen last month when China made its first so far futile attempt to curb rising commodity prices. In defiance of the government, Chinese steelmakers maintained strong demand, while the market awaited supply disruptions in Brazil.
Grain markets saw mixed, but generally lower trading in the week following the release of the USDA’s monthly report on global agricultural supply and demand estimates. Corn is headed for a second weekly gain after the report held that supplies fell below expectations due to strong demand from the export and ethanol production sectors. Weather models predict more droughts in one of the major production regions in the United States of America. Wheat trades witnessed stability during the week after recovering from the latest correction, amid fears of the impact of drought on reducing production rates. Soybeans have been under pressure, with the USDA revealing that stocks will beat expectations, while higher prices are limiting demand for soybean oil and soy flour.
Crude oil trading also rose for the third week in a row, as Brent crude consolidated its barrel prices above $70, while WTI succeeded in achieving its highest closing levels since 2018. The pace of growth slowed somewhat, despite the optimistic expectations of a rise in prices during the half The second of 2021, as the market began to verify the results of the recovery witnessed in demand so far in the Western Hemisphere.
The potential short-term negative impact of the Iran nuclear deal came to light on Thursday, as algorithms that normally control a large proportion of daily volumes in the futures market were hit with temporary bottlenecks after news that the United States was lifting sanctions on a single Iranian figure, rather than the country as a whole, was misread. This prompted a temporary drop in Brent and West Texas Intermediate crude prices by more than 2%, before returning to the starting point. According to TankerTrackers.com, the Iranian supertanker fleet currently has 70 million barrels of gas condensate stockpiles, and it has recently increased due to insufficient demand from China, which is its largest customer.
The monthly oil market reports issued by the US Energy Information Center, OPEC and the International Energy Agency drew positive expectations in support of the demand for crude oil, as the International Energy Agency expects the global demand for oil to return to levels before the outbreak of the virus at a late stage of next year. While Iran’s return to the global market within a few months is likely to boost supply for the rest of the year, the OPEC+ group of producers currently has the power and ability to determine the direction of oil prices. By maintaining an artificial tightening of the market over the coming months, this group risks stabilizing the landscape in 2022, when the International Energy Agency expects non-OPEC countries to rebound due to a price increase of about 1.6 million barrels.
Estimating a target price for a politically controlled commodity such as oil is extremely difficult. Despite the risk of a correction in the short term, the current path is for higher prices with Brent likely to target 2019 highs at $75.
gold and silver prices
As for gold and silver, Ole Hanson says that they are witnessing a phase of price consolidation, and most of the short-covering operations were carried out in gold from long-term funds that follow trends, and currently reached about $18.
After a shallow correction so far, both found a show after the strongest reading in decades for the CPI, but instead of getting support from inflation hedges, miners jumped as US Treasury yields plunged to a new low in the last cycle, as the market concluded that Inflation is temporary, and the Fed won’t back down early.
While the FOMC next week is unlikely to elicit any further focus on the pullback, attention will shift to any announcement of a change in sentiment from Jackson Hole in late August. Ten-year real yields fell to a one-month low -0.94%, as silver outperformed to touch a one-week low in gold/silver per ounce. Again, bullion traders will look at the resistance levels at $1,904 and then $1,916, while a close below the 21-day moving average at $1,887 could signal a loss of renewed momentum, with the next major downside target being the 200-day moving average at 1840 dollars.